How do the board director's characteristics impact the capital structure?

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How do the board director's characteristics impact the capital structure?

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Themes

USA United States of America, France, capital structure, board of directors, trade-off theory, pecking order theory, market timing theory

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Abstract

This study compares companies in France and the United States to examine the relationship between board of director characteristics and their impact on capital structure decisions. The focus of the study is on the impact of board members' independence, and nationality on capital structure as well as the alignment of those companies with the principles of Modigliani and Miller's Capital Structure Irrelevance Theory. The results of an Excel analysis using a statistical correlation method show the effect of the factors studied on the capital structure. The findings reveal that the percentage of independence of the board directors doesn't lead to differences in capital structure, furthermore, it highlights that board diversity exerts a distinct influence on capital structure in both countries. Regarding the alignment with the Capital Structure Irrelevance Theory, the study shows that the companies sampled conform to the theory. This research provides valuable insights for companies operating in diverse global contexts, emphasizing the need to tailor financial strategies to the unique attributes of their operating environments.

Introduction
Literature Review
1. Capital Structure Theory
2. The Board of Directors
3. Literature review of previous studies and hypothesis
Empirical study
1. Data
2. Analysis Method
3. Descriptive Statistics
4. The Effect of Higher Proportion of Independent Board Directors on Capital Structure
5. The Effect of Board Diversity on Capital Structure
6. Modigliani and Miller's Capital Structure Irrelevance Theory
Conclusion
Recommendations

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[...] However, it's crucial to provide evidence not only of time-varying adverse selection costs but also of their sustained impact on companies' capital structure choices (Baker & Wurgler, 2002). The second version of the theory posits that market-timing opportunities arise due to irrational investors or managers and time-varying share mispricing. Directors issue equity when they perceive costs as unreasonably low and repurchase equity when shares are considered overpriced (Baker & Wurgler, 2002). Empirical support for this version comes from the positive relationship between market-to-book ratios and net equity issues (De Bie and De Haan, 2007; Graham and Harvey, 2001; Taggart, 1977). [...]

[...] doi.org/2326804 - Zahra, S. A. and Pearce, J. A. [...]

[...] In 2005, Chen et al. examined whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. Their data came from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The results from univariate analyses, where they compared fraud and no-fraud firms, show that ownership and board characteristics are important in explaining fraud. However, using a bivariate probit model with partial observability we demonstrate that boardroom characteristics are important, while the type of owner is less relevant. [...]

[...] In addition, he found that both the external environment and the board characteristics have some impact on what directors do, extending the limited empirical evidence found in the literature. In the same vein, Ria R. (2023) conducted a study with the purpose of studying the function of capital structure as an intermediate variable in the relationship between corporate governance and company performance. This study used data from financial statements and was conducted in the non-financial sector of Indonesia. This article studies corporate governance characteristics in terms of board size, audit committee, and board independence. [...]

[...] We can deduce that the presence of a higher percentage of female board directors causes very different outcomes in France compared to the USA. Total Debt Average Age Total Debt 1 Average Age 0.188105 1 Table 11:Correlation Test in France Total Debt Average Age Total Debt 1 Average Age 0.227382 1 Table 12: Correlation Test in the USA Total Equity Average Age Total Equity 1 Average Age 0.114651 1 Table 13: Correlation Test in France Total Equity Average Age Total Equity 1 Average Age 0.288359 1 Table 14: Correlation Test in the USA The correlation coefficient of approximately 0.1881 indicates a weak positive correlation between Total Debt and Average Age in French companies. [...]

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